Debenhams issues profit warning

Monday 04 March 2013 - Editorial Assistant

Department store Debenhams has today issued a profit warning for its first half following a 10 per cent fall in like-for-like (LFL) sales during the two snow-affected weeks in January.

Although group LFLs rose three per cent for the 26 weeks to March 2nd 2013 and 2.9 per cent in the first 18 weeks, between January 14th and 27th UK LFLs dropped 10 per cent and the group now expects pre-tax profit to be around £120 million for its first half, down 5.5 per cent on the same period last year.

Promotional activity undertaken in February to capitalise on Valentine’s Day and half-term In a bid to recover lost sales proved detrimental to gross margin, which is set to be flat rather than see a 10 basis point rise as previously guided.

Stock levels at the end of the period will remain in line with expectations while full year guidance on costs remains unchanged.

“Whilst the impact of the snow on the outcome for the first half is disappointing, it is now behind us and sales volumes have recovered,” said Debenhams CEO Michael Sharp.

“We are confident in our spring/summer ranges and that we can grow sales in the second half.

“Our strategy to build a leading international, multichannel brand remains on track and we continue to focus on the four pillars of the strategy and investing in our business for long-term, sustainable growth.”

However, analysts have said that the unscheduled profit warn is indicative of the ongoing struggles facing department stores in particular.

Matt Piner, Research Director at analyst firm Conlumino, believes that, while the snow caused undoubted disruption, c autious consumers grabbed the opportunity to avoid spending following earlier January sales which saw people return to budgeting earlier than usual given the uncertain economy.

Piner added: “The arrival of the snow from January 14th onwards then further hastened this process meaning that, by the second half on the month, there was very little consumer activity by historic standards.

“This particularly impacted retailers like Debenhams, which rely on the buzz and excitement surrounding sales periods to generate much of their volumes.

“Consequently, in an attempt to compensate for the weak month, Debenhams ramped up promotions in February focused on Valentine’s Day, half-term and the month end.

“Although this did have some success, it came at a price, with the focus on discounting inevitably undermining margins and profits.

“Indeed this is a conundrum now facing many retailers. Although sales are a useful tactic to grab the attention of reluctant shoppers, the widespread use of them in recent years means consumers are quick to put their money away when things return to full price.

“The likes of Debenhams then have to carefully negotiate a middle ground between luring them back with more promotions and eroding profitability.

“The tough environment in recent times means that it is a hard balance to get right.”